The U.S. Department of Homeland Security confirmed it has initiated legal action that prompted the Dwolla payment service to stop processing bitcoin transactions.

Nicole Navas, a spokesperson for U.S. Immigration and Customs Enforcement, confirmed the legal action to CNET this afternoon.

MtGox has read on the Internet that the United States Department of Homeland Security had a court order and/or warrant issued from the United States District Court in Maryland which it served upon the Dwolla mobile payment service with respect to accounts used for trading with MtGox. We take this information seriously. However, as of this time we have not been provided with a copy of the court order and/or warrant, and do not know its scope and/or the reasons for its issuance. MtGox is investigating and will provide further reports when additional information becomes known.

• Amazon Coins are yet another virtual currency -- specifically for buying virtual goods on Amazon's Kindle tablet. One Amazon Coin is equal to the value of a US penny, and everyone will soon be collecting them, so get them before they're all gone.... [url]
• Flooz.com officially shut down in 2001, putting an end to its digital currency that was used on the internet as an early kind of electronic gift certificate. Thousands of people had bought Flooz (at an exchange rate of 1 USD to 1 Flooz), but the company had also sold ~$300,000 worth of Flooz via fraudulent credit card transactions, which ultimately doomed the company. [url]
• Bitcoins are still getting attention, even after some serious missteps, but the market for Bitcoins isn't quite trustworthy yet. If Bitcoins do succeed in gaining mainstream use, will there be a flood of digital currencies based on a variety of different cryptographic rules? [url]

On the other hand, "a person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter," and is therefore subject to federal regulations.

However, this may only apply to those who perform money transmitting services "as a business." FinCEN says that "a user of virtual currency is not an MSB under FinCEN's regulations and therefore is not subject to MSB registration, reporting, and record keeping regulations." But with a peer-to-peer currency, the line between a "user" and an "administrator or exchanger" is not at all clear. The regulations define an exchanger as someone who "engaged as a business in the exchange of virtual currency for real currency."

Matonis reviews the limited US case law here, and concludes:

To say the cryptocurrency bitcoin is disruptive would be an understatement. Bitcoin not only disrupts payments and monetary sovereignty, it also disrupts the legal enforcement of anti-money laundering laws, asset seizure, and capital controls. It is very likely that a key disclosure case will make it to the U.S. Supreme Court where it is far from certain that the Fifth Amendment privilege, as it relates to a refusal to decrypt bitcoin assets, will be universally upheld.

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On a site like Silk Road, where, as shown above, most of the goods sold are illicit, one would expect a certain amount of deception to occur. Indeed, a buyer choosing, for instance, to purchase heroin from an anonymous seller would have very little recourse if the goods promised are not delivered. Surprisingly, though, most transactions on Silk Road seem to generate excellent feedback from buyers. Table 3 provides a breakdown of the feedback ratings from 187,825 feedback instances we collected. 97.8% of feedback posted was positive (4 or 5 on a scale of 1 to 5). In contrast, only 1.4% of feedback was negative (1 or 2 on the same scale).

Although Bitcoin does not have a centralized authority, the FBI assesses with medium confidence that law enforcement can discover more information about, and in some cases identify, malicious actors, if the actors convert their bitcoins into a fiat currency. Thirdparty bitcoin services may require customers to submit valid identification or bank information to complete transactions. Furthermore, any third-party service that qualifies as a money transmitter, and therefore a MSB, must register with the FinCEN and implement an anti-money laundering program.

So Davis, the author of the New Yorker story, emails Clear.

"I like to keep a low profile," Clear replies. "I'm curious to know how you found me."

Davis eventually cuts to the chase:

Finally, I asked, "Are you Satoshi?"

He laughed, but didn't respond. There was an awkward silence.

"If you like, I'd be happy to review the design for you," he offered instead. "I could let you know what I think."

"Sure," I said hesitantly. "Do you need me to send you a link to the code?"

"I think I can find it," he said.

In the end, Clear says he's not the guy — but his denial leaves the door open just a crack:

"I'm not Satoshi," Clear said. "But even if I was I wouldn't tell you."

Simultaneously therewith, trademark applications have begun in those civil law countries, wherein, "first to use" status is not recognized as a defense to trademark registration. These civil law countries, which account for most of the world's population, and land mass, only recognize a "first to file" basis for trademark registration. The penalties for infringing trademarks in those civil law "first to file" countries are as severe as the common law jurisdictions, such as the USA, UK, Canada, Australia, etc., which utilize a "first to use" basis.

Therefore, jumping up and down exhorting that "Bitcoin" has been in use in the USA, or another common law country, since the dark ages is no defense, repeat no defense, to a claim of infringement of a properly registered mark in a "first to file" jurisdiction.

Mr. Pascazi does not really understand trademark law, it appears. While he is correct that many civil law countries have a first-to-file process, that does not mean they have no ability to challenge the issuance of the mark.

A trademark must be a source identifier. In other words, Mr. Pascazi's 'client' must be recognized as the source of a product by consumers if the mark Bitcoin is used.

As for enforcing international marks in the U.S., this is not as easily done as Mr. Pascazi would hope. Especially if he is able to obtain a registration abroad on such shaky grounds. It could still be subject to the same cancellation process as a U.S. mark.

The question is whether Mr. Pascazi will truly try and enforce a foreign mark on foreign soil. Paying international lawyers is not cheap.

And will he continue to maintain the mark and defend it against attacks?

Mr. Pascazi's client is over-reaching. I recommend Mr. Pascazi or his lawyer consult real trademark attorneys about this. They might receive more thorough advice.

We don't fully understand the complex legal issues involved with creating a new currency system. Bitcoin raises untested legal concerns related to securities law, the Stamp Payments Act, tax evasion, consumer protection and money laundering, among others. And that’s just in the U.S. While EFF is often the defender of people ensnared in legal issues arising from new technologies, we try very hard to keep EFF from becoming the actual subject of those fights or issues. Since there is no caselaw on this topic, and the legal implications are still very unclear, we worry that our acceptance of Bitcoins may move us into the possible subject role.

Bitcoin is legally novel. But every new technology is legally novel. EFF didn’t shy away from publishing commentary online while publisher liability was legally ambiguous.

Accepting a Bitcoin donation is like accepting a donation in kind, in contract rights, or in cat food. If it’s worth taking, you go figure out how to accept the donation and square it with existing law. If it’s clearly illegal, you don’t accept the contribution. (EFF would have said so if they felt it was.) If it’s in the middle, a defender of rights to use technology should be inclined toward accepting Bitcoin and clarifying the law, not away from accepting Bitcoin in deference to legal ambiguity and free-ranging government power.

"Literally, it allows buyers and users to sell illegal drugs online, including heroin, cocaine, and meth, and users do sell by hiding their identities through a program that makes them virtually untraceable," Schumer said at a news conference Sunday. "It's a certifiable one-stop shop for illegal drugs that represents the most brazen attempt to peddle drugs online that we have ever seen. It's more brazen than anything else by lightyears."

"It's an online form of money laundering used to disguise the source of money, and to disguise who's both selling and buying the drug," said Schumer.

• Long ago, the island of Yap created huge, heavy, carved pieces of limestone as a form of currency. Since moving the stones is pretty difficult, these "coins" are transferred abstractly by just changing who owns the stone. [url]
• Bitcoin is a digital currency based on a cryptographic scheme -- preventing fraudulent transactions and allowing for reliable transfers without central banking entities. Interestingly, Bitcoin (briefly) achieved parity with the US dollar earlier this year, but it hasn't sustained that value. [url]
• The virtual economy of Second Life is based on another digital currency, the Linden dollar. However, the Linden dollar is governed by Terms of Service that explicitly state that the Linden is not real currency or any type of financial instrument. [url]
• To discover more interesting stuff on economics, check out what's currently floating around the StumbleUpon universe. [url]